Theme 2.3 Managing Finance

Question 1

How to improve profitability?

Answer 1

• Increase prices -> difference between selling price and cost of production is greater
• Reducing variable costs -> buy in bulk
• Reduce expenses -> relocate business, replace inefficient fixed assets, reduce staff

Question 2

How to improve liquidity?

Answer 2

• sell off excess stock -> inventory turned to cash -> sold low price to attract sales
• ask suppliers to extend repayment period -> business use cash for other purposes -> suppliers may be unwilling
• reduce credit period for customers -> collecting owed money high current assets
  -> customers may move to competing business

Question 3

Internal reasons why a business may fail

Answer 3

• Poor planning -> poor budgeting and lack of research
• Lack of leadership -> failure to delegate and lack of urgency
• Ineffective marketing -> poor understanding of customer needs and wants and promotional mistakes

Question 4

External reasons why businesses fail

Answer 4

• Changes in consumer trends -> need frequent market research
• Economic Challenges -> high interest rate high business costs -> period of recession due to high demand

Market challenges
-> competitors undercut prices, gain market share
-> market selling prices may even be too low to break even

Question 5

What is liquidity

Answer 5

How easy it is to turn assets into cash